Non-market economies




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CHAPTER 10:

NON-MARKET ECONOMIES
Table of Contents
I. INTRODUCTION 2

II. NON-MARKET ECONOMY STATUS 2

III. SEPARATE RATES 3

A. Overview 3

B. Practice 3

C. Rate Assignment/Combination Rates 5

D. Application 5

E. Certification 6

F. Separate Rates and Facts Available 6

G. Rate Assignment for Non-Selected Companies 6

IV. THE NME-WIDE RATE 7

A. Overview 7

B. Application 7

V. AFFILIATION AND SINGLE ENTITY DETERMINATIONS 8

A. Overview 8

B. Affiliated Producers of the Subject Merchandise 9

C. Affiliated Exporters of the Subject Merchandise 9

D. Exporters of the Subject Merchandise and Affiliated Producers 9

E. A Single Rate for the Single Entity 10

F. Producers of Upstream Inputs 11

VI. NME Calculation Methodology 11

A. Overview 11

B. Surrogate Country selection 12

C. Calculation of NV Based on FOP 15

D. Sample Calculation 18

E. Markey-Economy Inputs 21

F. Free of Charge Inputs 23

G. By-Product Offsets 24

H. Intermediate Inputs 25

I. Financial Ratios 28

VII. Market-Oriented Industry (“MOI”) 31

A. Overview 31

B. Criteria 31

C. Practice 32


References:

The Act


Section 771(18) - definition of an NME; factors considered in determining NME status; and other items

Section 773(c) - NME countries

The Department’s Regulations

19 CFR 351.107 - cash deposit rates

19 CFR 351.408 - calculation of NV for NME countries
I. INTRODUCTION
One of the most complicated areas under the Act is the treatment of NME countries. The presence of government controls on various aspects of these economies renders price comparisons and the calculation of production costs invalid under the Department’s normal methodologies. In addition, the fact that the currencies of these countries may not be convertible means that, even if an NV could be calculated in the country, it might not be expressed meaningfully in U.S. dollar terms.
Thus, under the U.S. antidumping law, countries that the Department has designated as NME countries are subject to an alternative methodology for the calculation of NV in antidumping proceedings. The Department uses prices in a surrogate market economy country to value respondents’ factors of production. Section 771(18) of the Act defines NMEs, and Section 773(c) provides guidance on the Department’s methodology in NME cases.
This chapter will explain how a country is designated as an NME country, how individual companies can obtain duty rates separate from that of the NME entity, the calculation of U.S. price and NV in an NME context, and the application of the NME-wide rate, as well as the calculation of a cash deposit rates for the NME entity. Finally, it will discuss the market-oriented industry provision of the statute.
II. NON-MARKET ECONOMY STATUS
In determining whether a country should be treated as an NME under section 771(18)(A) of the Act, section 771(18)(B) requires that the Department take into account six factors:


  • the extent to which the currency of the foreign country is convertible into the currency of other countries;

  • the extent to which wage rates in the foreign country are determined by free bargaining between labor and management;

  • the extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country;

  • the extent of government ownership or control of the means of production;

  • the extent of government control over the allocation of resources and over the price and output decisions of enterprises; and

  • such other factors as the administering authority considers appropriate.

If the Department has designated a country as an NME, this determination remains in effect until revoked by the administering authority, pursuant to section 771(18)(c)(i) of the Act. For the Department to conduct a review of a country’s NME status, the country’s government must make a formal request for a review, or support a respondent’s claim in an antidumping case, that the country has a market economy.1 After the Department receives a formal request, the Department begins an analysis of the six factors outlined above to determine whether to treat the country in question as an NME.


If a country has not been formally designated as an NME, it is presumed to be a market economy. If an interested party alleges that the country is an NME and documents its allegation with respect to each of the factors listed above, the Department will initiate a formal inquiry to determine whether the country should be treated as an NME. See Import Administration Policy Bulletin 03.1, February 28, 2003.
If an analyst receives a filing in which a party requests that a country that is currently treated as an NME be designated a market economy or, conversely, that a country presumed to be a market economy be designated as an NME, the analyst should consult with his/her program manager.
III. SEPARATE RATES
A. Overview
Individual dumping margins are automatically assigned to exporters in market-economy country cases. In NME cases, however, exporters must pass a separate rate test to receive a rate that is separate from the NME-wide rate.2 Those exporters that do not or cannot demonstrate that they are separate from the government-wide entity receive the NME-wide rate.
B. Practice
In proceedings involving NME countries, the Department begins with a rebuttable presumption that all companies within the country are essentially operating units of a single, government-wide entity and, thus, should receive a single antidumping duty rate (i.e., an NME-wide rate). In situations where the NME respondent is owned wholly by entities located in market-economy countries, a separate rate analysis is not necessary to determine whether its export activities are independent.3
In all other situations, to establish whether a company’s export activities are sufficiently independent of the government to be eligible for separate rate status, the Department analyzes each exporting entity under the test established in the Final Determination of Sales at Less Than Fair Value: Sparklers from the People’s Republic of China, 56 FR 20588 (May 6, 1991) (Sparklers), and later expanded upon in Final Determination of Sales at Less Than Fair Value: Silicon Carbide from the People’s Republic of China, 59 FR 22585 (May 2, 1994) (Silicon Carbide). Under this analysis, exporters in NMEs are accorded separate, company-specific margins if they can provide sufficient proof of an absence of government control, both in law and in fact, with respect to export activities. Evidence supporting, though not requiring, a finding of de jure absence of government control over export activities includes: 1) an absence of restrictive stipulations associated with an individual exporter’s business and export licenses; 2) any legislative enactments decentralizing control of companies; and 3) any other formal measures by the central and/or local government decentralizing control of companies. See Sparklers, 56 FR at 20588.
In its de jure analysis, the Department examines the laws, regulations, and enactments that apply to the firm seeking a separate rate. In past cases involving the People’s Republic of China (“PRC”), for example, the Department has found the following laws and regulations relevant to its analysis of the de jure absence of government control over export activities:


  • Company Law of the PRC, effective January 1, 2006;

  • Foreign Trade Law of the PRC, effective July 1, 2004;

  • Administrative Regulations of the PRC Governing the Registration of Legal Corporations;

  • PRC’s Enterprise Legal Person Registration Administrative Regulations of June 13, 1998;

  • Law of the PRC on Chinese-Foreign Cooperative Joint Ventures;

  • Regulation Governing Rural Collectively-Owned Enterprises of the PRC of 1990;

  • Law of the PRC on Industrial Enterprises Owned by the Whole People, adopted on April 13, 1988 (AThe Industrial Enterprises Law);

  • Regulations for Transformation of Operational Mechanisms of State-Owned Industrial Enterprises of 1992 (ABusiness Operation Provisions); and

  • The Organic Law on Village Communities in the PRC (AVillage Committee Law).

The Department considers four factors in evaluating whether a respondent is subject to de facto governmental control of its export functions: (1) whether the export prices are set by, or subject to the approval of, a governmental authority; (2) whether the respondent has authority to negotiate and sign contracts and other agreements; (3) whether the respondent has autonomy from the government in making decisions regarding the selection of management; and (4) whether the respondent retains the proceeds of its export sales and makes independent decisions regarding the disposition of profits or financing of losses.4


The level of government control is relevant to the separate rate analysis. Government control of companies in NMEs includes central, provincial, township or village government control. If a company's export activities are subject to government control at any level, there is the possibility that export prices and export-related activities are subject to manipulation by the relevant NME government entity.5
C. Rate Assignment/Combination Rates
As noted above, the Department’s practice is to assign separate rates only to exporters that have demonstrated their independence from de jure and de facto government control over their export activities. The Department recently modified its practice for assigning separate rates in NME antidumping investigations. While continuing the practice of assigning separate rates only to exporters, all separate rates that the Department now assigns in NME investigations will be specific to those producers that supplied the exporter during the period of investigation (“POI”).6 Note, however, that one rate is calculated for the exporter and all of the producers which supplied subject merchandise to it during the POI. This practice applies to both mandatory respondents receiving a separate rate as well as the non-investigated exporters that receive a separate rate. This practice is referred to as the application of combination rates because such rates apply to specific combinations of exporters and one or more producers. The cash-deposit rate assigned to an exporter will apply only to merchandise both exported by the firm in question and produced by a firm that supplied the exporter during the POI. This practice is similar to the Department’s established practice in new shipper reviews and in cases where firms are excluded from an antidumping duty order (i.e., due to zero or de minimis margins), both of which use exporter-producer combination rates.7
D. Application Process
The Department recently changed its practice by which exporters in NME investigations, particularly those not selected as mandatory respondents, apply for a separate rate.8 Under the Department’s current policy, all exporters seeking a separate rate in an investigation/review must complete a separate rate application form. The separate rate application is posted for each investigation/review on the IA website upon initiation of the investigation/review and may be tailored to some extent depending, for example, on the NME country involved in the investigation. Only those NME exporters selected as mandatory respondents are required to respond to the full antidumping questionnaire if they wish to obtain a separate rate. In antidumping investigations, Section A of the questionnaire includes the applicable separate rate application, which must be submitted as part of the questionnaire response.
E. Certification
The Department has further simplified the separate rates process in administrative reviews, where the Department receives a large number requests for review.9 The Department allows respondents who have already applied for and received a separate rate in a previous proceeding to submit a certification that their status has not changed and they continue to meet the de jure and de facto criteria to qualify for a separate rate. They are not required to submit another full separate rate application. However, Petitioners are free to challenge any company’s certification and the Department would then be obligated to more fully examine the company’s separate rate qualifications.
F. Separate Rates and Facts Available
The Department’s separate rate determination and its margin of dumping determination are two distinct determinations. In certain circumstances, it is possible for a respondent to receive a separate rate even though its margin rate is based on the facts available. For example, in the case of freshwater crawfish tail meat from the PRC, the Department verified separate rates information with respect to two companies, but discovered at verification that the companies withheld other information.10 In this review the Department granted the companies separate rates, but those rates were based on adverse facts available.11
G. Rate Assignment for Non-Selected Companies12
Section 777A(c)(2) of the Act gives the Department discretion, when faced with a large number of exporters/producers, to limit its examination to a reasonable number of such companies if it is not practicable to examine all companies. Where it is not practicable to examine all known producers/exporters of subject merchandise, this provision permits the Department to investigate either (1) a sample of exporters, producers, or types of products that is statistically valid based on the information available to the Department at the time of selection or (2) exporters/producers accounting for the largest volume of the merchandise under investigation that can reasonably be examined.
The determination of the antidumping duty rate for those exporters who obtain a separate rate but who are not selected as respondents depends on the methodology used by the Department in its selection. Where respondent selection is based on the largest exporters, the Department normally assigns to exporters not selected as mandatory respondents a weighted average of the rates individually calculated for the mandatory respondents. In such circumstances, the Department excludes any rates that were zero, de minimis, or based entirely on facts available when calculating the weighted-average rate assigned to non-mandatory respondents, pursuant to section 735(c)(5) of the Act.13
When selecting respondents by sampling, the Department assigns the non-investigated / reviewed companies that were part of the pre-selection population a calculated antidumping rate (“sample rate”), based on the margins of the individually examined respondents. The sample rate is applied to all firms not selected for individual examination. In recent cases in which the Department used sampling to limit the number of firms examined, the Department included in the sample rate any zero or de minimis dumping margins and any dumping margins based on facts available (referred to as best information available prior to the Uruguay Round Agreements Act).14
IV. The NME-Wide Rate
A. Overview
As noted in the Separate Rates section above, the Department begins with a rebuttable presumption that all companies within the NME country are essentially operating units of a single, government-wide entity and should receive a single antidumping rate.
B. Application
In an antidumping investigation, all companies other than those that have been determined to be eligible for a separate rate are part of the NME entity and receive the NME-wide rate. That rate may be based on adverse facts available if, for example, some exporters that are part of the NME-wide entity do not respond to the antidumping questionnaire.15 In many cases, the Department concludes that some part of the NME-wide entity has not cooperated in the proceeding because those that have responded do not account for all imports of subject merchandise.
In an administrative review, the Department examines whether each exporter for which the Department has initiated a review is eligible for a separate rate. Companies which are non-responsive to the Department’s questionnaire or its request for quantity and value information are not eligible to apply for a separate rate. In the Department’s notices initiating administrative reviews, the Department includes the following footnote with respect to initiations of reviews for NME countries:
If one of the above-named companies does not qualify for a separate rate, all of the other exporters of {product name} from {NME country name} who have not qualified for a separate rate are deemed to be covered by this review as part of the single {NME country name} entity of which the named exporters are a part.
Occasionally, the NME-wide rate may be changed through an administrative review.16 This happens when 1) the Department is reviewing the NME entity because the Department is reviewing an exporter that is part of the NME entity, and 2) one of the calculated margins for a respondent is higher than the current NME-wide rate.17
V. Affiliation and Single Entity Determinations
A. Overview
For a general discussion of affiliation, see the Affiliated Parties section of Chapter 8, above. The following discussion outlines the principles, statutory authority and case precedent underlying the Department’s practice with respect to affiliation and the treatment of companies as a single entity in NME cases.
In general, NME entities, just as market economy entities, are subject to the provisions of section 771(33) of the Act, which defines affiliated persons, and 19 CFR 351.102(b) and 19 CFR 351.401(f), which cover the agency’s single entity test, insofar as such treatment does not conflict with the Department’s application of separate rates and enforcement of the NME provisions.18 The question of whether affiliated parties constitute a single entity can arise among various combinations of producers, exporters, and suppliers of inputs, as discussed below.
B. Affiliated Producers of the Subject Merchandise
Because the Department assigns separate rates to, and calculates margins only for, exporters of the subject merchandise, the question of whether producers are affiliated with each other does not generally arise in NME cases. Producers may, however, be determined to be members of a group of affiliated companies containing an exporter as well. See Exporters of the Subject Merchandise and Affiliated Producers section, below.
C. Affiliated Exporters of the Subject Merchandise
The Court of International Trade (“CIT”), in Hontex Enterprises, Inc. v. United States, 248 F. Supp. 2d 1323 (CIT 2002)(“Hontex I”), affirmed the Department’s practice of finding affiliation between or among NME exporters. The CIT concluded that it is a reasonable interpretation of the term persons to apply such term to NME exporters for purposes of interpreting the statutory provisions regarding affiliated persons. In Hontex Enterprises, Inc. v. United States, 342 F. Supp. 2d 1225, 1232 (CIT 2004)(“Hontex II”), the CIT, citing section 771(33) of the Act, stated that in order for Commerce to find that two or more exporters are affiliated, one must control the other(s), or all of the exporters must be under common control. Further, while the Department’s regulation addresses affiliated producers, the Department has developed a practice in NME cases to assign antidumping duty rates to exporters rather than producers. The CIT held that once a finding of affiliation is made, affiliated exporters can be considered a single entity (or collapsed) where their relationship has the potential to impact decisions concerning the production, pricing, or cost of the subject merchandise. See Hontex II at 1232-34. The CIT also instructed that the Department must take into consideration the temporal aspect of the exporters’ relationship. See Hontex I at 1343.
D. Exporters of the Subject Merchandise and Affiliated Producers
In the case of mushrooms from the PRC, the Department stated that:
. . . to the extent that section 771(33) of the Act does not conflict with the Department’s application of separate rates and enforcement of the non-market economy (ANME) provision, section 773(c) of the Act, we will determine that exporters and/or producers are affiliated if the facts of the case support such a finding.19

As the Department explained in the Mushrooms Final, in determining whether to treat affiliated companies as a single entity, the Department considers the case-specific relationships between the companies under examination. In accordance with 19 CFR 351.401(f), the Department considers whether the companies in question: (1) are affiliated; (2) have similar production facilities such that retooling would not be required to shift production from one company to another; and (3) have a significant potential for manipulation of price or production. See 19 CFR 351.401(f). In determining whether a significant potential for manipulation exists, the Department may consider other factors such as: (1) the level of common ownership; (2) the extent to which managerial employees or board members of one firm sit on the board of directors of an affiliated firm; and (3) whether the operations of the affiliated firms are intertwined. See id. Moreover, the Department has also stated, in line with the CIT’s analysis in Hontex I, that the factors listed in 19 CFR 351.401(f)(2) are not exhaustive, and in the context of an NME investigation or administrative review, other factors unique to the relationship of business entities within the NME may lead the Department to determine that collapsing is either warranted or unwarranted, depending on the facts of the case.20


E. A Single Rate for the Single Entity
If an exporter and its affiliated entities can be collapsed into a single entity, the single entity will obtain a single antidumping duty rate. See, generally, Mushrooms Final and accompanying Issues and Decision Memorandum at Comment 1. Further, the Mushrooms Final states that implicit in the Department’s decision to collapse . . . is that the resulting rate would apply to all of the companies in the collapsed entity, provided that the entity as a whole is eligible for a separate rate, because to do otherwise would defeat the purpose of collapsing them in the first place.” See, Mushrooms Final and the accompanying Issues and Decision Memorandum at 13. The Mushrooms Final states that a single entity determination is specific to the facts presented in each review and is based on several considerations, including the structure of the affiliated entities, the level of control between/among affiliates, and the level of participation by each affiliate in the proceeding.
Thus, depending upon the facts of each investigation or review, if there is evidence of significant potential for manipulation of price or production between or among affiliated producers which produce similar and/or identical merchandise, but may not all produce their product for sale to the United States, the Department may find such evidence of significant potential for manipulation of price or production as sufficient to apply the collapsing criteria in an NME context in order to determine whether all or some of those affiliated producers should be treated as one entity.21
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